Google’s plan to eat Amazon’s lunch and dominate retailing

Marc Andresseen, the kingmaker of Silicon Valley, is fond of pointing out that “software is eating the world.” Google’s recent purchase of Channel Intelligence, a data management platform for retailer inventory, underscores its unstated, Borg-like goal of slowly gobbling up every industry it encounters.

This particular move, though, is a not-so-subtle signal to the marketplace that Google intends to become the dominant player in global ecommerce – which in the U.S. alone is already a $186 billion goldmine. Yes, for Google this is not just about going deeper into the ads business. The ever-expanding behemoth’s intention is to take a bite out of retailers margins too, starting first with those generated by ecommerce websites.

The first stop for shoppers

The Channel Intelligence purchase adds to the buzz that Google created back in October when it shifted its Google Shopping property to a fully paid ad marketplace, which by many accounts generated some $1 billion in the fourth quarter. And a Conductor study says that Google already influences over a quarter of all e-commerce transactions through its little search engine. These recent moves indicate that it seeks not only to go toe-to-toe with Amazon, but also to sneak up on other retail giants that sell both online and in stores.

Channel Intelligence (now part of Google) has a robust set of leading retail advertisers, which provides Google access to detailed retailer pricing and inventory data. Even more importantly, Google will get more valuable data on how those retailers convert browsers into customers. The ability to use its vast data resources to better understand retailer margins ultimately gives Google more pricing power for its ads.

Being able to offer retailers an easier way to deliver product inventory into its search engine will make Google a more formidable player in online shopping. Judging from the growing volume of retail-driven search on both Google and Amazon, it is clear that users are choosing to go to one of those spots to get the most up-to-date pricing and product availability. This is a two-way battle to be the consumer’s first stop. The winner of this battle will become the gatekeeper of the consumer through which all retailers will have to go to sell products.

Evolution to a digital store shelf

With the advent of today’s on-demand culture, Google is betting that it no longer matters who actually sells the product. Consumers are squarely in control and Google will increasingly help them find that product they are looking for, and do so at the right location for the right price. This was traditionally the role of ecommerce players like Amazon and massive offline retailers like Wal-Mart and Target.

However, with the growth of Google Shopping and the integration of those results into its core search engine, Google is quickly becoming the “digital store shelf” that it had always promised. For example, Google web search results today for retail queries tend to have at least 10 to 15 product images in addition to the traditional blue links. As Google starts to aggregate retailers’ local inventory – a probable next step on its roadmap with Channel Intelligence – it will be able to compete more aggressively in the mobile commerce space as well, directing consumers to physical stores in exchange for more ad dollars.

Not just ecommerce but all commerce

Make no mistake about it, Google is making a play for all retail with its recent moves and every retailer should be worried about the implications. (Rumors are swirling this week that the company has plans for its own branded retail outlets.) However, while Google is dominant in search, it is not the global ecommerce leader yet. It does not own significant pieces of the customer relationship (e.g. shipping, customer support, and retention marketing) and retailers can remain competitive by investing in areas that will stave off commoditization. Because as we all know, once you are a commodity, you will be traded like pork bellies and sold to the highest bidder. And that’s no place for a great retail brand to be.

The promise of e-commerce is having informed consumers finding the products they need from the brands that they love. Here are a few things marketers should employ to fend off Google’s advances:

Focus on your brand’s value proposition and how it will be perceived in a Google search and other ad channels. Highlight what makes you unique so that you don’t become just another slot in a price list.